Digital Transactions Authoritative, insightful and timely information for payments professionals
The magnolia tree outside my office window has bloomed, offering its seasonal display of flowering beauty and putting us in mind of other perennials, such as bankers’ lament that non-bank payments companies are unfairly luring away their customers.
The 10-gallon word for this alleged piracy is disintermediation. In our travels to industry conferences this winter, we noticed the word has been dusted off and is being mentioned more frequently to deplore the way in which tech companies have insinuated themselves between consumers and their banks. This is no doubt a reaction to recent events in mobile payments, where tech titans like PayPal and Google have introduced services and where the country’s biggest wireless carriers have created a digital wallet they will introduce later this year.
As the saying goes, we’ve seen this movie before. Industry graybeards will recall the impact AT&T Inc’s Universal credit card had when it debuted in 1990, striking fear in bankers’ hearts with its promise of no annual fee for life at a time when banks were feasting on such fees. And PayPal has been a bête noire in the banking industry almost from the day it was founded. None of these threats, if threats they were, displaced banks. Indeed, in some crucial markets, such as acquiring, banks have regained ground with processing subsidiaries of their own. So the perennial lament about disintermediation begins to ring a bit hollow.
In another vein, banks’ repeated assertion that non-banks enjoy an unfair advantage in payments, as they are not regulated as heavily, is a fair point but deserves some qualifiers. First, this should be viewed, not as an argument to subject non-banks to the heavy hand of the state, but rather to lighten the force of that hand on the banks. This sentiment, for example, informs our objection to such statutes as the Durbin Amendment.
Second, bankers who feel at a regulatory disadvantage might want to have a chat with Aaron Greenspan, founder of an innovative payments platform called FaceCash. Greenspan has suspended operations at FaceCash while he prosecutes a lawsuit in which he’s trying to get the state of California to clarify what his company is supposed to do to comply with a new money-transmitter law that applies to startups like his. If the state prevails, it might well mean the end not only of FaceCash but also of any venture with similar aspirations.
At bottom, non-bank tech companies succeed in payments to the extent that they satisfy unmet consumer demand. That takes vision, guts, and a little luck. But the opportunity wouldn’t have been there if the demand had been satisfied in the first place.
John Stewart, Editor
john@digitaltransactions.net
